Crackerjack Greenback Prudent Advice for a Prosperous Future

October 31, 2008

Why a Budget Is Good (or “Spending Plan” if That Makes You Feel Better)

Filed under: Budgeting,Spending,The Basics — Paul Williams @ Crackerjack Greenback @ 3:38 pm

       That’s right. I just said a budget is good. We hate the sound of that word, don’t we? It reeks of denial, hardship, restraint, and, for most people, boredom. But failing to create a budget and stick to it (to some degree) is one of the primary reasons so many people have a hard time managing their personal finances. So here are a few reasons why it’s good to have a budget and track your expenses.

A Simple Budget (Piggy Bank by ES on Flickr)

   You can easily figure out if you’re spending too much money.

       By tracking and totaling your expenses over one or two months, you can easily figure out if you’re spending too much money. Add up your monthly income, subtract your monthly expenses, and if the result is negative then you’re spending too much money. There are other ways to tell if you’re spending too much money (is your debt increasing every month?), but this is one surefire way to double check it.

   You can see where your money is going.

       It’s easy to lose track of all your bills and remember where you spent the cash you had in your wallet or purse. By creating a budget and continuing to track your spending, you can keep a comprehensive list of all your expenses and how much they cost. From there, you can see where your biggest outflows are and find ways to save money in those areas.

   You can target specific areas for improvement.

       Once you’ve tracked your spending for a bit and are comfortable with the numbers, you can decide on budget goals. Where do you want to cut back and by how much? If you don’t have your budget written down (on paper or electronically), it’s much more difficult to set these goals for yourself.

   You’ll start spending less.

       The mere act of tracking your spending is likely to cause you to spend less. Why? You’ll become more conscious of your spending habits and begin to carefully examine your purchases. Once you start to question whether or not you need to spend money you’ll start spending less. Be careful – Corporate America doesn’t want you to do this!

   You can have less stress and make better decisions.

       Do you want to take your significant other out to dinner but you’re not sure if you can afford it? Check your budget. Friends invite you on a weekend roadtrip but you’re worried about money? Check your budget. If you can fit the expense into the appropriate budget category, then you can spend without guilt. (Assuming, of course, that you are meeting your savings goals.) Finally, you’ll have a good idea of how much money you should have in your emergency fund. Take your necessary monthly expenses and multiply by some number between 3 and 6. (You can’t do this if you don’t know your monthly expenses!)

My Budgeting Confession

       With all that said, I have to tell you that I no longer track my expenses. I do have a budget, but it’s mostly because I like numbers. I don’t actually keep track of what I spend. I have all my bills set on auto-pay (except heating oil), my savings is automatic, I have a sizable emergency fund, and I have my spending under control. If you can say the same about your own situation, then I actually encourage you not to track your spending too closely. It’s a waste of time if you don’t need it.

       On the other hand, if you aren’t paying yourself first (automatic savings), haven’t established an emergency fund, or don’t have your spending under control, then you absolutely need a budget until you get to that point. If you really hate the idea of budgeting and tracking your expenses, just remind yourself that eventually you won’t have to do it anymore. It’s only temporary!

       Next Friday I’ll list a few different ways you can create a budget and track your spending.

No Comments »

No comments yet.

RSS feed for comments on this post. TrackBack URL

Leave a comment

Powered by WordPress

css.php